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Campaign group Positive Money have welcomed the Bank of England’s statement that stablecoins should face closer regulation if they become widely used in the UK.
Simon Youel, head of policy & advocacy at Positive Money, says users need to be protected from the risks of private money, but would benefit from a BoE-backed digital currency.
“With the decline of cash and emergence of private digital currencies, we urgently need a new form of public money in the form of a central bank digital currency, to ensure that we aren’t surrendering the future of money to unaccountable private interests.
“A central bank digital currency would open up access to our central bank to everyone, taking away the unique privileges enjoyed by private banks, and ending our reliance on them to manage our money and make payments.”
‘Stablecoins are only as stable as their reserves. Operator Tether has clarified that its reserves include less than 3 per cent in cash. Most is in commercial paper — although it is not clear who the issuers are.’ https://t.co/bcM6XmFVwA pic.twitter.com/ot8fS8XiDQ
FT’s coverage of Tether and its “reserves”
I believe what is needed is global coordination for auditing all stablecoins irrespective of their jurisdiction.
The question is whether 100% of a stablecoin would be readily convertible to fiat currency upon demand.
June 3, p.16 pic.twitter.com/YYkDIFRHXp
The Bank of England has launched a discussion paper examining the complex, but fascinating, question of central bank digital money and the wider issues surrounding digital currency.
And in it, the BoE says that “stablecoins” (digital tokens pegged to a traditional currency, but issued by private firms) should be regulated like payments handled by banks if they start to become widely used.
New forms of digital money could be preferred by the public to commercial bank deposits, but they will endure only if they can be trusted as a store of value and as an accepted means of payment.
This means that stablecoins must promise, credibly and consistently, to be fully interchangeable with existing forms of money. In other words, they must be anchored. This is essential for ensuring that users have the same confidence in stablecoins as commercial bank money.
BoE: “opportunities can only be realised if new forms of digital money are safe. They could be privately provided – in form of ‘stablecoins’. Or they could be publicly provided – in the form of a central bank digital currency”..“precautionary arrangements may therefore be needed”
“new forms of digital money are assumed to be denominated in sterling. Unlike cryptoassets such as Bitcoin, which do not have an anchor, they are also assumed to be backed by assets that make them stable in value…”
“stablecoins must promise, credibly and consistently, to be fully interchangeable with existing forms of money. In other words, they must be anchored. This is essential for ensuring that users have the same confidence in stablecoins as commercial bank money”
Bank of England say that stablecoins will lead to more credit coming from non bank sector, could increase cost of credit in banked sector, it may therefore have a transition period where it could “limit migration” to new forms of digital money
Digital money could increase the speed of bank runs in a crisis too, BoE suggests.
To be used as “money” stablecoins would need to abide by certain regulatory norms: “legal claim, capital requirements, central bank support during stress, & a backstop to compensate depositors”
“We live in an increasingly digitalised world where the way we make payments and use money is changing rapidly. The prospect of stablecoins as a means of payment and the emerging propositions of CBDC have generated a host of issues that central banks, governments, and society as a whole, need to carefully consider and address.
It is essential that we ask the difficult and pertinent questions when it comes to the future of these new forms of digital money.”